Econintersect: The manufacturing sector continued to strengthen in November 
2013, but the strengthening performance came at the expense of employment cuts. The reading, at 50.8 was only slightly below the 50.9 recorded for October. Expansion of export orders was marginal but output and total new orders were strong. The report raises the question of whether the government will take further actions to stimulate the Chinese economy. Because inflation remains low it is felt that there is room to do so.
Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
“China’s manufacturing sector kept relatively steady growth momentum in November, as the final manufacturing PMI was revised up from the flash reading on the back of faster new business gains. However, the renewed contraction of employment and the slower pace of restocking activities call for a continuation of accommodative policy. The modest inflationary pressures leave room to do so.”
The cautious reaction to the new data is quite wide-spread. Reuters has a quote from Thomas Lam, chief economist at DMG & Partners Securities in Singapore:
“The data broadly says that things are stabilising in China and there’s probably less downside risk to prices. But I don’t think it foreshadows significant pick-up from here into next year.”
The press release from Markit:
November data signalled a further improvement of operating conditions in China’s manufacturing sector, albeit marginal. Output and new order growth both increased at their strongest rates in eight months in November, but renewed job shedding led to a solid increase in outstanding business.
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 50.8 in November, up slightly from the earlier flash reading, and little-changed from 50.9 October. Though marginal, it was the second-highest index reading in eight months.
Production levels at Chinese manufacturers increased for the fourth month running in November, and at the fastest rate since March. Growth was supported by a quicker expansion of total new business. That was despite new export orders rising at a fractional pace, suggesting that new order growth was largely driven by domestic demand. According to anecdotal evidence, improved business conditions and the launch of new products boosted volumes of new work.
Despite the greater volume of new business, manufacturers cut their staffing levels in November, reversing a slight expansion of payroll numbers in October. That said, the rate of job shedding was only marginal, with a number of panellists citing company down-sizing policies and the non-replacement of voluntary leavers.
Consequently, backlogs of work continued to increase in November. Moreover, the rate of backlog accumulation was the second-strongest in over two years.
Purchasing activity increased over the month in response to greater output requirements. That said, the rate of increase slowed from the previous month to a modest pace. Conversely, stocks of purchases held by Chinese manufacturers declined slightly in November, with a number of firms attributing the reduction to increased production.
Average input costs faced by Chinese goods producers increased for the fourth consecutive month, with panellists reporting higher raw material prices across both national and international markets.
Firms chose to partially pass on their higher cost burdens to clients in November, and raised their selling prices marginally. Moreover, it was the weakest rate of output charge inflation in four months, with some firms lowering their prices in an effort to boost sales.
Sources:
- HSBC China Manufacturing PMI™ signals further slight improvement of operating conditions (Markit, HSBC Purchasing Managers’ Index™ Press Release, 02 December 2013)
- Asian shares edge down, China PMI offers support (Lisa Twaronite, Reuters, 02 December 2013)
